Insurance vs. Gambling – the Differences

Insurance vs. Gambling – the Differences

April 14, 2019 0 By Anthony Ekanem

Insurance contracts are often seen as a form of gambling. That is because they appear as a type of wager that takes place over the lifetime of the policy. Basically the insurance company is willing to bet that you and your property will not suffer the loss insured against. In exchange for making this bet, and taking on the risk, they receive your premium. If they win the bet, they keep the premium, if they lose, they make the payout. In this sense, they are often compared to a type of long-term financial casino. The difference between your premium amount, and the amount the insurance company will have to pay out if the loss occurs, is simply the odds the insurance company is getting for taking on the bet. It is just like going to the horse races and betting on a horse that pays out 10 to 1.

Social Insurance

The above view of insurance (as a gambling) has led to a number of people and religious communities disapproving of insurance because of its similarities to gambling. Among those groups that avoid insurance are the Amish and Muslim communities. What these people do instead is create a system of what is known as social insurance. What this means is that if there is a disaster and someone suffers a heavy loss, then the whole community will step forward and help them to deal with their loss and rebuild. While this system is very simple, it has the potential to be just as effective a safety net as insurance. However, it requires that the community actually does step forward and help those who suffer from disasters. This means that it is more successful in small closed and closely knit communities than in large modern societies.

Social insurance systems therefore are not always effective. Often the community that is supposed to adopt it is not suitable. Also, in very large disasters, the system can break down as a small community will not be able to rebuild itself completely without outside assistance. This is why larger modern insurance systems can be more robust. However, in extremely large disasters, modern insurance systems can also run into difficulties. This is witnessed by the fact that it is impossible to insure against certain risks such as floods, hurricane and earthquakes. This is because these risks are fundamental in nature, and the damage would be simply too for the insurance companies to cope with.


There are other ways in which insurance doesn’t follow the gambling model. For instance, insurance companies seek to reduce the risk of the loss occurring, for instance, by requiring the installation of fire alarms, or by reducing the loss if the insured event does occur, for example by providing rehabilitation to accident victims. Therefore insurance is like a gamble in the reward and risk elements, but other elements are different.

Risk in Gambling

Risk is the possibility (uncertainty) that a loss might occur, and it is the reason people buy insurance. Some people think the risk you take with insurance is the same as the risk involved with gambling.  That is not correct. The risk in gambling is a “speculative” risk. What this means is that there is an opportunity for gain as well as for loss in gambling.

Risk in Insurance

Insurance deals with “pure” risks. With pure risk, there is the possibility that a certain event will occur, e.g., accident, fire or sickness, which will result into a loss to the insured or policyholder.  There is no opportunity for gains in insurance risks.

The Differences

So, what are the differences between insurance and gambling? In a nutshell, the following are the major differences between insurance and gambling:

  1. The purpose of insurance is to restore the insured to his original financial position before the loss, not to afford him the possibility of making a profit. In gambling, there is possibility of loss or gain. In insurance, there is no possibility of gain.
  2. For insurance, loss might never occur while for gambling, the bet must happen in order to determine winner or loser.
  3. Insurance involves pure risks while gambling involves speculative risks.
  4. Regular premiums are paid for insurance while for gambling payment is done once.
  5. Insurance aims at indemnifying the insured while gambling aims at benefiting the gambler.
  6. For insurance, the insured must have insurable interest while gambling has no insurable interest.

We hope by now you have come to the conclusion that insurance is far better and more beneficial than gambling. Below are the importance and benefits of having an insurance policy.

Importance and Benefits of Insurance

  1. The obvious and most important benefit of insurance is the payment of losses.  An insurance policy is a contract used to indemnify individuals and organizations for covered losses.
  2. The second benefit of insurance is managing cash flow uncertainty.  Insurance provides payment for covered losses when they occur.  Therefore, the uncertainty of paying for losses out-of-pocket is reduced significantly.
  3. A third and uncommon benefit of insurance is complying with legal requirements.  Insurance meets statutory and contractual requirements as well as provides evidence of financial resources.
  4. Another very important benefit of insurance is promoting risk control activity.  Insurance policies provide incentives to implement a loss control programme because of policy requirements and premium savings incentives.
  5. The fifth benefit of insurance is the efficient use of an insured’s resources.  Insurance makes it unnecessary to set aside a large amount of money to pay for the financial consequences of the risk exposures that can be insured.  This allows that money to be used more efficiently.
  6. Another uncommon, important benefit of insurance is support for the insured’s credit.  Insurance facilitates loans to individuals and organizations by guaranteeing that the lender will be paid if the collateral for the loan is destroyed or damaged by an insured event.  This reduces the lender’s uncertainty of default by the party borrowing funds.
  7. The seventh benefit of insurance is it provides a source of investment funds.  Insurance companies collect premiums up front, invest those premiums in a variety of investment vehicles, and pay claims if they occur.
  8. The last benefit of insurance is reducing social burden.  Insurance helps reduce the burden of uncompensated accident victims and the uncertainty of society.

Still not convinced that insurance is important and beneficial (and better than gambling? Please read
What makes gambling wrong and insurance right by British Broadcasting Corporation (BBC) to find out.